What Real Estate Agents Need to Know About FinCEN’s Beneficial Ownership Information (BOI) Reporting Rule
If you’re a real estate agent or involved in any entity structured as a corporation, LLC, or similar organization, the Beneficial Ownership Information (BOI) Reporting Rule (commonly referred to as the Reporting Rule) from FinCEN is something you need to pay attention to, including a recent move by a Texas court temporarily halting the requirement and creating more confusion.
While this rule might seem like it primarily applies to small business owners, it also has implications for real estate professionals and investors who operate under certain business structures. Let’s break it down and address how it could impact you if reinstated.
An appeal is likely so stay informed but no filing is needed at the moment.
What is the Reporting Rule?
The Reporting Rule requires certain businesses to file beneficial ownership information (BOI) reports with FinCEN. These reports are intended to increase transparency and help combat illicit financial activities, such as money laundering or tax evasion. In simple terms, FinCEN wants to know who owns and controls certain entities to increase accountability.
The BOI reports must include information about:
- Beneficial Owners – Individuals who own or control at least 25% of a reporting company.
- Company Applicants – Individuals responsible for filing the company’s registration paperwork.
Beneficial Owners
In plain terms, a beneficial owner is any individual who either:
- Exercises substantial control over a reporting company,
OR - Owns or controls at least 25% of the company’s ownership interests.
Beneficial owners can qualify through one or both of these criteria, meaning:
- A company could have multiple beneficial owners who fit different roles (e.g., one person has substantial control, while others meet the ownership threshold).
- There is no maximum number of beneficial owners to report.
FinCEN requires all reporting companies to identify and report at least one beneficial owner. So even if your real estate business is a small operation, there’s no getting around this requirement.
Company Applicants
Whether you need to report company applicants depends on when your company was created or registered to do business in the United States:
Required to report:
- Domestic companies created on or after January 1, 2024.
- Foreign companies registered in the U.S. on or after January 1, 2024.
Not required to report:
- Domestic companies created before January 1, 2024.
- Foreign companies registered in the U.S. before January 1, 2024.
If your real estate entity falls under the latter categories, you’re off the hook for reporting company applicants. But if you’re forming a new LLC or registering an entity after the specified date, you’ll need to comply.
Nationwide Injunction Halts Enforcement of the Corporate Transparency Act
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction suspending the enforcement of the Corporate Transparency Act (CTA) and its Beneficial Ownership Information (BOI) Reporting Rule.
This injunction temporarily relieves businesses, including real estate entities structured as corporations or LLCs, from the obligation to file BOI reports with the Financial Crimes Enforcement Network (FinCEN).
If you want to read more about why the court thought the Act is likely unconstitutional, be our guest.
What This Means for Your Real Estate Business
The injunction suspends the requirement for reporting companies to disclose their beneficial ownership information to FinCEN.
Even though enforcement of the Act is temporarily suspended, it's worth reviewing the details in case it is reinstated.
Who Is a Company Applicant?
For entities required to report, FinCEN identifies two categories of company applicants:
Direct Filer
This is the individual who physically or electronically filed the company’s creation or registration documents. For instance, if you or someone in your team submitted the filing to the secretary of state, that person is the direct filer.
Directs or Controls the Filing Action
If another person directed or controlled the filing process but didn’t actually submit the documents, they also qualify as a company applicant.
Example: You hire a legal professional to manage the formation of your LLC. If they control the process and another individual files the documents, both are company applicants.
Key Limitations
- Only individuals can be reported as company applicants—entities cannot qualify.
- A company can report no more than two company applicants.
Does This Apply to My Real Estate Business?
It might. Entities like corporations, LLCs, or any other company formed by filing documents with a state office or tribal authority fall under the category of reporting companies.
However, there are exemptions for certain types of businesses. For instance, sole proprietorships or certain types of trusts may not fall under the rule, so it’s essential to check whether your entity qualifies for an exemption. FinCEN’s guidance aims to make this determination easier, but consulting with a legal or financial professional is wise if you’re unsure.
Important Deadlines to Keep in Mind
- January 1, 2024: FinCEN started accepting BOI reports.
- January 1, 2025: Businesses created or registered before January 1, 2024, must file their initial reports by this date (currently on hold).
- Within 90 Days: Businesses created or registered on or after January 1, 2024, but before January 1, 2025, have 90 calendar days to file after receiving public or actual notice of their creation.
- Within 30 Days: Starting January 1, 2025, newly created or registered businesses have 30 calendar days to file.
Missing these deadlines can result in penalties, so marking your calendar is essential if your real estate business qualifies as a reporting company.
What Are the Steps Involved?
Step 1: Identify Individuals with Substantial Control
So, who exercises “substantial control”? FinCEN defines this broadly to include anyone who:
- Is a senior officer of the company.
- Think CEO, CFO, or any top-level executive overseeing operations.
- Has authority to appoint or remove key personnel, such as officers or a majority of the board of directors.
- Makes important decisions about the company.
- This could include decisions about financials, business strategy, or operations.
- Exerts any other substantial influence over the company.
- This catch-all category ensures that anyone indirectly controlling the business is also accounted for.
For real estate agents, this might include a managing broker or team leader in a business structure with multiple agents or partners.
Step 2: Identify Ownership Interests
The second way someone qualifies as a beneficial owner is by owning or controlling at least 25% of the company’s ownership interests. Ownership interests can include:
- Equity, stock, or voting rights
- Capital or profit interests in the company
- Convertible instruments or options, such as the right to buy or sell ownership shares
- Contracts or mechanisms that establish ownership
If your real estate business has multiple owners or partners, you’ll need to calculate how much ownership each individual holds directly or indirectly. For example:
- If you and three partners each own 25% of an LLC, all four of you must be reported as beneficial owners.
- If one partner owns 50% and the other three own 16.67% each, only the 50% owner qualifies as a beneficial owner under this rule.
Step 3: Calculate Ownership Percentages
For accurate reporting, you’ll need to calculate ownership percentages, even if ownership interests are layered or indirect. Consider scenarios like these:
- Direct ownership: An individual owns 25% of the company outright.
- Indirect ownership: An individual owns 15% of your real estate company through another LLC but also owns 10% directly. Combined, they hold 25% ownership and qualify as a beneficial owner.
What Happens If I Don’t Comply?
The willful failure to file a BOI report—or willfully providing inaccurate or fraudulent information—has consequences, potentially including the following:
- Civil Penalties: Up to $500 per day until the violation is corrected.
- Criminal Penalties: Fines up to $10,000 and/or imprisonment for up to two years.
Of course, these penalties are also on hold as of December 3, 2024 as the matter continues to be litigated.
What Happens if Information Changes?
Real estate and other companies must file updated BOI reports if there are changes to the information originally provided. Examples include:
- Changes in the company’s details, such as registering a new DBA (Doing Business As).
- A new beneficial owner, such as hiring a new CEO or a shift in ownership percentages.
- Personal changes to a beneficial owner, like a new address, name, or identifying number.
Special Case: Deceased Beneficial Owners
If a beneficial owner dies, any changes to ownership must be reported within 30 days of settling the estate.
Correcting Inaccuracies
Mistakes happen, but FinCEN provides a 90-day grace period from the original filing date to correct inaccuracies without penalties. If you discover an error, correct it within 30 days of becoming aware of it.
Stay Informed and Prepared
While this injunction provides temporary relief, it's important to remain vigilant. The court's decision is preliminary and subject to appeal, which could reinstate the reporting requirements. Monitor updates from FinCEN and consult with legal professionals to ensure compliance if the injunction is lifted.
If the reporting requirements are reinstated, remember: you’re not alone in this. FinCEN has provided resources, and there are experts you can lean on—whether that’s your legal counsel, accountant, or other advisors.
Tackling these requirements now ensures you’ll have more time to focus on what you do best: building relationships, closing deals, and growing your business.
Compliance might seem tedious, but in the end, it’s all about protecting your business. You’ve got this!
Note: This information is subject to change based on ongoing legal proceedings and potential appeals. Always consult with a legal professional for the most current advice.
Helpful Links
o FinCEN BOIR Filing (click here to go straight to the filing page)
o FinCEN Small Business Compliance Guide
o FinCEN Beneficial Ownership Reporting Outreach and Education Toolkit
